Pay off mortgage vs pay for renovation

[Anonymous]

Anonymous wrote:

Anonymous wrote:Do not pay off the mortgage. I’d invest the money in a high rate savings/money market and think over what to do with it. It’s a VERY expensive time to renovate so I would not rush into that right now.

It's only going to get more expensive unfortunately. When demand goes back up after the next round of interest rate cuts it is going to be worse.

Renovations very well could come down in price relative to wage growth/inflation over the next 3-5 years… basically if renovation costs don’t go up but everything else does, it pays to wait.

[Anonymous]

Always pay down debt, OP! If you pay off your current mortgage this will drastically increase your credit score and credit utilization ratio. Once that happens, you’ll be eligible for much lower interest rates. Then you can borrow money at even lower rates.

Don’t be fooled by all the jealous naysayers trying to keep you tied up in golden handcuffs.

[Anonymous]

Anonymous wrote:Always pay down debt, OP! If you pay off your current mortgage this will drastically increase your credit score and credit utilization ratio. Once that happens, you’ll be eligible for much lower interest rates. Then you can borrow money at even lower rates.

Don’t be fooled by all the jealous naysayers trying to keep you tied up in golden handcuffs.

Wait what

If you pay off your mortgage, your credit score will drop by around 30 points if it's the only installment loan you have. It's very beneficial to your credit score to have an active installment loan (not a credit card with a balance) with a long positive payment history.

https://www.washingtonpost.com/business/2023/09/08/850-credit-score-drop-paid-off-house-mortgage/

Also, you think OP is going to get a new loan for less than 2.8%?

Finally, credit utilization calculation only involves active credit cards, not any installment loans. Literally everything written in PP is incorrect.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Always pay down debt, OP! If you pay off your current mortgage this will drastically increase your credit score and credit utilization ratio. Once that happens, you’ll be eligible for much lower interest rates. Then you can borrow money at even lower rates.

Don’t be fooled by all the jealous naysayers trying to keep you tied up in golden handcuffs.

Wait what

If you pay off your mortgage, your credit score will drop by around 30 points if it's the only installment loan you have. It's very beneficial to your credit score to have an active installment loan (not a credit card with a balance) with a long positive payment history.

https://www.washingtonpost.com/business/2023/09/08/850-credit-score-drop-paid-off-house-mortgage/

Also, you think OP is going to get a new loan for less than 2.8%?

Finally, credit utilization calculation only involves active credit cards, not any installment loans. Literally everything written in PP is incorrect.

No. No. No. Quoting anything from the Washington Post is the first indication that your advice is biased and wrong.

And, yes, I just was approved for a Discover Home Equity Loan a month ago for $300K at 2.66%. They will cut the rate significantly (1/3 normal rate minimum of 7.99%) if you’re taking out the maximum for 30 years and have recently paid off your primary mortgage.

And credit utilization definitely includes installment loans. It’s why your credit score is so much lower just after you open a new loan but haven’t paid down much of the balance. Do your homework!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Always pay down debt, OP! If you pay off your current mortgage this will drastically increase your credit score and credit utilization ratio. Once that happens, you’ll be eligible for much lower interest rates. Then you can borrow money at even lower rates.

Don’t be fooled by all the jealous naysayers trying to keep you tied up in golden handcuffs.

Wait what

If you pay off your mortgage, your credit score will drop by around 30 points if it's the only installment loan you have. It's very beneficial to your credit score to have an active installment loan (not a credit card with a balance) with a long positive payment history.

https://www.washingtonpost.com/business/2023/09/08/850-credit-score-drop-paid-off-house-mortgage/

Also, you think OP is going to get a new loan for less than 2.8%?

Finally, credit utilization calculation only involves active credit cards, not any installment loans. Literally everything written in PP is incorrect.

No. No. No. Quoting anything from the Washington Post is the first indication that your advice is biased and wrong.

And, yes, I just was approved for a Discover Home Equity Loan a month ago for $300K at 2.66%. They will cut the rate significantly (1/3 normal rate minimum of 7.99%) if you’re taking out the maximum for 30 years and have recently paid off your primary mortgage.

And credit utilization definitely includes installment loans. It’s why your credit score is so much lower just after you open a new loan but haven’t paid down much of the balance. Do your homework!

Oh sorry didn't realize the Washington Post was such a bad source, how about....Equifax?

https://www.equifax.com/personal/education/credit/score/articles/-/learn/why-credit-scores-may-drop-after-paying-off-debt

"For example, paying off your only installment loan, such as an auto loan or mortgage, could negatively impact your credit scores by decreasing the diversity of your credit mix. Creditors like to see that you can responsibly manage different types of debt. Paying off your only line of installment credit reduces your credit mix and may ultimately decrease your credit scores."

Credit utilization :

https://www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/

"Credit utilization is also sometimes called revolving credit utilization because only your revolving credit accounts are included in the calculations."

There is a list right after that quote. Mortgages are not in it.

As for HELOC rates, I don't know how it's possible you got a 2.66% rate today. The rates Discover is advertising right now are almost triple that. There is no information anywhere about cutting the rates as significantly as you say. Please show a link to those terms.

https://www.discover.com/home-loans/rates/home-equity-loan-rates/

I could see if you took out that HELOC in 2021 that it would be that low. But not today. Why would Discover lend you money at 200bps below the Fed funds rate?

[Anonymous]

Do the reno. We renovated a few years ago and so glad because we could not afford it now.

You know: your mortgage rate is set (very low)

You don’t know: what rate will look like in next few years. They may lower as well as inflation was supposed to be “transitory” - we see how that is going. I would not want to count on borrowing money right now.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Always pay down debt, OP! If you pay off your current mortgage this will drastically increase your credit score and credit utilization ratio. Once that happens, you’ll be eligible for much lower interest rates. Then you can borrow money at even lower rates.

Don’t be fooled by all the jealous naysayers trying to keep you tied up in golden handcuffs.

Wait what

If you pay off your mortgage, your credit score will drop by around 30 points if it's the only installment loan you have. It's very beneficial to your credit score to have an active installment loan (not a credit card with a balance) with a long positive payment history.

https://www.washingtonpost.com/business/2023/09/08/850-credit-score-drop-paid-off-house-mortgage/

Also, you think OP is going to get a new loan for less than 2.8%?

Finally, credit utilization calculation only involves active credit cards, not any installment loans. Literally everything written in PP is incorrect.

No. No. No. Quoting anything from the Washington Post is the first indication that your advice is biased and wrong.

And, yes, I just was approved for a Discover Home Equity Loan a month ago for $300K at 2.66%. They will cut the rate significantly (1/3 normal rate minimum of 7.99%) if you’re taking out the maximum for 30 years and have recently paid off your primary mortgage.

And credit utilization definitely includes installment loans. It’s why your credit score is so much lower just after you open a new loan but haven’t paid down much of the balance. Do your homework!

This poster is an idiot and possibly a liar. But hard to know if lying or just doesn’t understand the heloc they signed.

[Anonymous]

Anonymous wrote:Always pay down debt, OP! If you pay off your current mortgage this will drastically increase your credit score and credit utilization ratio. Once that happens, you’ll be eligible for much lower interest rates. Then you can borrow money at even lower rates.

Don’t be fooled by all the jealous naysayers trying to keep you tied up in golden handcuffs.

Totally wrong. Paying off your mortgage doesn’t increase your credit score. It won’t increase your score. It would most likely decrease your score.
From the credit bureaus themselves:
https://www.transunion.com/article/what-happens-when-i-pay-off-my-mortgage
https://www.equifax.com/personal/education/credit/score/articles/-/learn/why-credit-scores-may-drop-after-paying-off-debt/

[Anonymous]

We don’t have any kind of installment loan and our scores still hover around 830. This is not a reason to keep a mortgage. There are other reasons to keep a low rate loan, but this is not one of them.

[Anonymous]

Anonymous wrote:We don’t have any kind of installment loan and our scores still hover around 830. This is not a reason to keep a mortgage. There are other reasons to keep a low rate loan, but this is not one of them.

Agreed it's not a reason to keep a mortgage - there is no functional difference between an 800 and an 830 score. But the statement was made that "paying off a mortgage will increase your credit score", and in most cases in the short run, it will decrease it 20-30 points. But yes it will go back up over time. Both times our house was refinanced, my score dropped around 25 points when the payoff was posted to my credit report, and then jumped back up by 25 again a month later when the new mortgage was finally reported. And the Washington Post anecdotes and Experian info support that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We don’t have any kind of installment loan and our scores still hover around 830. This is not a reason to keep a mortgage. There are other reasons to keep a low rate loan, but this is not one of them.

Agreed it's not a reason to keep a mortgage - there is no functional difference between an 800 and an 830 score. But the statement was made that "paying off a mortgage will increase your credit score", and in most cases in the short run, it will decrease it 20-30 points. But yes it will go back up over time. Both times our house was refinanced, my score dropped around 25 points when the payoff was posted to my credit report, and then jumped back up by 25 again a month later when the new mortgage was finally reported. And the Washington Post anecdotes and Experian info support that.

Exact.